We Think Miyaji Engineering GroupInc (TSE:3431) Can Stay On Top Of Its Debt

Simply Wall St · 04/14 23:26

Legendary fund manager Li Lu (who Charlie Munger backed) once said, 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We can see that Miyaji Engineering Group,Inc. (TSE:3431) does use debt in its business. But should shareholders be worried about its use of debt?

We've discovered 1 warning sign about Miyaji Engineering GroupInc. View them for free.

What Risk Does Debt Bring?

Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. Part and parcel of capitalism is the process of 'creative destruction' where failed businesses are mercilessly liquidated by their bankers. However, a more usual (but still expensive) situation is where a company must dilute shareholders at a cheap share price simply to get debt under control. Of course, the upside of debt is that it often represents cheap capital, especially when it replaces dilution in a company with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash and debt together.

How Much Debt Does Miyaji Engineering GroupInc Carry?

You can click the graphic below for the historical numbers, but it shows that as of December 2024 Miyaji Engineering GroupInc had JP¥4.80b of debt, an increase on JP¥1.50b, over one year. But it also has JP¥9.82b in cash to offset that, meaning it has JP¥5.02b net cash.

debt-equity-history-analysis
TSE:3431 Debt to Equity History April 14th 2025

A Look At Miyaji Engineering GroupInc's Liabilities

We can see from the most recent balance sheet that Miyaji Engineering GroupInc had liabilities of JP¥26.1b falling due within a year, and liabilities of JP¥4.73b due beyond that. On the other hand, it had cash of JP¥9.82b and JP¥42.8b worth of receivables due within a year. So it can boast JP¥21.8b more liquid assets than total liabilities.

This luscious liquidity implies that Miyaji Engineering GroupInc's balance sheet is sturdy like a giant sequoia tree. Having regard to this fact, we think its balance sheet is as strong as an ox. Succinctly put, Miyaji Engineering GroupInc boasts net cash, so it's fair to say it does not have a heavy debt load!

Check out our latest analysis for Miyaji Engineering GroupInc

Also good is that Miyaji Engineering GroupInc grew its EBIT at 12% over the last year, further increasing its ability to manage debt. There's no doubt that we learn most about debt from the balance sheet. But you can't view debt in total isolation; since Miyaji Engineering GroupInc will need earnings to service that debt. So if you're keen to discover more about its earnings, it might be worth checking out this graph of its long term earnings trend.

But our final consideration is also important, because a company cannot pay debt with paper profits; it needs cold hard cash. While Miyaji Engineering GroupInc has net cash on its balance sheet, it's still worth taking a look at its ability to convert earnings before interest and tax (EBIT) to free cash flow, to help us understand how quickly it is building (or eroding) that cash balance. In the last three years, Miyaji Engineering GroupInc basically broke even on a free cash flow basis. Some might say that's a concern, when it comes considering how easily it would be for it to down debt.

Summing Up

While we empathize with investors who find debt concerning, you should keep in mind that Miyaji Engineering GroupInc has net cash of JP¥5.02b, as well as more liquid assets than liabilities. On top of that, it increased its EBIT by 12% in the last twelve months. So is Miyaji Engineering GroupInc's debt a risk? It doesn't seem so to us. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. To that end, you should be aware of the 1 warning sign we've spotted with Miyaji Engineering GroupInc .

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.